Key Market – Morocco

A more limited opportunity for LPG Power Generation. There may be some opportunity to use LPG as a ‘bridging’ solution in some areas until natural gas infrastructure is developed, but the high butane content of domestic LPG supplies is likely problematic

Headlines on the outlook for LPG Power Generation in Morocco:

A high contribution to electricity generation from coal, with a focus on new-build renewable generation, may limit the opportunity for LPG

LNG is currently favoured as the transitional fuel. Existing and future LNG infrastructure plans emphasise this.

Below, we discuss the key factors that influence the outlook for LPG Power Generation in Morocco in more detail.

Coal is the main electricity generation source in Morocco, offering the most stable prices and a relatively inexpensive price per kilowatt hour. In 2014, Morocco undertook significant steps in a gradual process of reforms to reduce subsidies for certain fossil fuels, including fuel oil for electricity generation. Diesel oil continues to receive a subsidy, along with butane – which could have a positive impact on LPG prices in the short term. However, in 2015, in its Intended Nationally Determined Contribution (INDC), Morocco announced further subsidy reforms for all fossil fuels. This will likely make coal less attractive as an electricity generation source, but may also reduce the economic advantage of propane gas / LPG.

According to Moroccan government projections, electricity generation from all fuels – except oil products – will increase to meet the additional 16,590 MW estimated to be needed by 2030. Coal remains the main component of the electricity mix (illustrated in Figure 19), and will do so until at least 2020, before its share declines around 2030. Natural gas is also projected to play a major role, with Morocco planning the construction of a new LNG importing terminal, which will supply 2,400 MWe of new combined-cycle gas turbines (CCGT). Both of these forecast increases are to provide dispatchable power to balance the intermittency of renewables. There could therefore be room for LPG to replace coal and compete with LNG in the near term. The country is also turning its attention to domestic unconventional fossil fuel deposits and progressively exploring the extraction of oil shale both on- and off-shore as well as nuclear energy.

Morocco relies on imports for almost 95% of its energy requirements, and is heavily reliant upon imported oil, natural gas and coal to generate electricity. The vast majority of its natural gas is imported from Algeria (a mere 7% sourced from domestic production), and large quantities of electricity are imported from Spain (~15%). This means that the electricity and gas grids (which span almost the entire country) are connected to other countries via extensive international links. Morocco is also actively examining the possibility of exporting electricity to Europe and the Middle East – becoming a pivotal player in the future realisation of plans for a more interconnected international electricity grid, due to its strategic location and increasingly liberalised electricity market.

Morocco has a strong strategic motivation to source more of its energy for electricity generation from indigenous sources for both energy security and financial reasons, which could play in LPG’s favour – especially if plans to exploit domestic shale gas are realised. However, several factors continue to make imported electricity an attractive option, such as the fact that Spanish electricity is currently priced very competitively.

Policy & regulatory framework – A supportive policy framework is expected to grow solar and wind significantly to 2030; LPG will have to compete with LNG to be the fuel of choice for additional dispatchable generation.

Morocco has taken a series of bold steps to diversify its generation mix in the electricity sector. The government now identifies within its legal framework the national priorities of generation from renewables and increasing energy efficiency. Morocco’s recent successes with renewable energy deployment, achieving some of the world’s lowest bid prices for wind and solar CSP (Concentrated Solar Power), reflect not only its excellent natural resources but also the fact that it has established an environment conducive to renewables deployment. It is within this context that LPG must compete.

The national utility Office National de Electricité et de l’Eau Potable (ONEE) has a dominant role in Morocco’s electricity market as it owns the power transmission grid and operates throughout the whole value chain (generation, transmission and distribution). IPPs (although generating 53% of total consumed electricity) still have to rely on ONEE’s cooperation as there is no regulating authority yet established in Morocco. This could change as the market becomes more liberalised, but in the short term, at least for LPG to make headway in the generation mix, it is vital that LPG generators can convince ONEE of the fuel’s advantages over LNG (which is currently ONEE’s preferred choice when it comes to new dispatchable generation).

As shown in Figure 20, Morocco is a big consumer of LPG, but produces a relatively small volume domestically. Afriquia Gaz is the producer market leader. Consumption is predicted to grow by around 3.5% per year from 2015’s 2.2 million tonnes to 2.8 million tonnes in 2020. The residential sector accounts for 86% of the total volume consumed, with LPG accounting for ~99%, 40% and 7% of all oil products used in the residential, commercial and industrial sectors, respectively. It is used in the residential and commercial sectors primarily for cooking and water heating. As these applications are gradually replaced with renewable heat (from e.g. solar) or electricity, this could free up storage/supply facilities of LPG to be directed instead towards power generation. However, post 2020 LPG will likely see increasing competition from LNG.

As part of the country’s integrated energy strategy, Morocco aims to become a hub for the transit of gas from Africa to Europe. To support this, a large storage facility for hydrocarbons (diesel, LPG and gasoline, amongst others) is planned in Nador Wast Med Port (to be completed in 2020), adding to the capacity already available at Tanger-Med Port. This will enable higher quantities of LPG product to be refined and for domestic supply to be shored up.

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